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3 shares that could provide disappointing earnings guidance in May

I think it is fair to say that the month of April has been an eventful one for the local share market filled with takeover offers and revelations from the Royal Commission.

Well the month of May looks set to be equally eventful with the banks reporting earnings, the Royal Commission pushing on, and the peak month for profit warnings upon us.

In respect to the latter, according to a note out of Goldman Sachs this morning, the month of May has typically been the peak month of company earnings updates given firms have greater clarity around trading conditions into the year-end.

In light of this, the broker has put together a list of the companies that they think could come out with earnings guidance updates this month.

On the downside Goldman has looked at companies that consensus estimates indicate are expected to have an unusually strong second half compared to historic averages.

These include the likes of Blackmores Limited (ASX: BKL), Boral Limited (ASX: BLD), Carsales.Com Ltd (ASX: CAR), Healthscope Ltd (ASX: HSO), Ramsay Health Care Limited (ASX: RHC), and Tabcorp Holdings Limited (ASX: TAH).

While the broker doesn’t necessarily expect all these companies to fall short of the market’s lofty expectations, it believes investors ought to be aware of the near-term earnings risk that the shares above pose.

Whereas the three shares that its analysts have tipped to provide disappointing full-year earnings guidance this month are Costa Group Holdings Ltd (ASX: CGC), Domino’s Pizza Enterprises Ltd. (ASX: DMP), and Spark New Zealand Ltd (ASX: SPK).

While the broker expects Costa to hit its full-year guidance, the broker believes that the market Is expecting another upgrade to its earnings guidance and could sink lower if one doesn’t come.

In respect to Domino’s, Goldman thinks that the pizza operator’s Japan business and the growing popularity of takeaway aggregators in Australia will weigh heavily on its performance and restrict it from meeting its guidance.

And finally, for Speak New Zealand, the broker doesn’t believe its cost out program will be enough for it to achieve any earnings growth in FY 2018.

What now?

I think Goldman makes some great points, however I’m not in complete agreement with the broker on Domino’s. While I do think that there’s a chance it will fall short of its guidance, there have been positive signs that things are improving.

Further, I believe the market is expecting a Domino’s earnings miss and feel this is already reflected in its share price. This could mean sizeable share price upside if it manages to deliver on its guidance.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and COSTA GRP FPO. The Motley Fool Australia has recommended carsales.com Limited, Domino's Pizza Enterprises Limited, and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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